Do you rent out a room in your home?
The Sharing Economy and Tax
There are multiple sharing economy websites and apps operating in Australia. The people who provide goods or services through any of them need to consider how GST and income tax apply to their earnings.
What is the Sharing Economy?
The sharing economy connects buyers (users) and sellers (providers) through a facilitator who usually operates an app or a website.
Popular sharing economy services include:
renting out a room or a whole house or unit for a short-time basis
providing taxi travel services (called 'ride-sourcing') for a fare
providing personal services, such as creative or professional services like graphic design, creating websites, or odd jobs like deliveries and furniture assembly
renting out a car parking space.
I am renting out all or part of my house through the sharing economy
This blog is dealing specifically with renting out a room, or part of your house, or your whole house for short periods through the sharing economy
When you rent out all or part of your residential house or unit through a sharing economy website or app you:
do not need to pay GST on amounts of residential rent you earn
need to keep records of all income earned and declare it in your income tax return
need to keep records of expenses you can claim as deductions.
If you are carrying on an enterprise in which you rent out commercial residential premises you will have different GST and income tax obligations.
If I am renting out a room or a whole house or unit, do I need to pay GST?
No. GST does not apply to residential rents, so you are not liable for GST on the rent you charge and you cannot claim any GST credits for associated costs.
Even if you carry on another GST registered enterprise, for example you are a ride-sourcing driver, you do not need to account for GST from the income earned from renting out a room or a house or unit. This is because GST does not apply to residential rent.
However, you do have to pay GST if you provide accommodation like a hotel room or serviced apartment, a bed and breakfast, or rent out commercial spaces like a function room or office space. These types of accommodations are subject to GST
Do I need to pay income tax on amounts received from renting out a room or whole house or unit?
Yes. If you rent out all or part of your house or unit, the payments you receive are assessable income. This means:
you must declare the income in your tax return
you can claim deductions for associated expenses.
You declare the income, and can claim associated expenses, for the income year as rental income in your income tax return.
You may also need to pay capital gains tax when you sell the house or unit. Even if the house or unit is your main residence, renting out any part of it usually means losing part of your CGT main residence exemption.
What deductions can I claim?
The types of expenses that you can claim for renting out all or part of your house or unit using a sharing economy website or app are the same as if you had a rental property. Common expenses you can claim include:
fees or commission charged by the facilitator or administrator
interest on a loan for the property
electricity and gas
cleaning and maintenance costs (products used or hiring a commercial cleaner)
Whether all or part of the expense can be claimed will depend on:
the proportion of the year you rent out the house or property
the portion of the property you have rented out (for example, a room or the whole property)
whether you use the home or part of the house for personal use when it is not rented out. Please be aware that 2018 Tax Return is the first year that you cannot claim any travel deductions for an investment property
Claiming deductions when only renting out part of the house
If you are only renting part of your home, for example a single room, you can only claim expenses related to renting out that part of the house. This means you cannot claim the total amount of the expenses – you need to apportion the expenses.
As a general guide, you should apportion expenses on a floor-area basis based on the area solely occupied by the renter (user), and add that to a reasonable amount based on their access to common areas.
You can only claim expenses for when the room was available for rent. If you use the room in any capacity, for example for storage or as an office when you do not have guests staying, then you cannot claim deductions for expenses when the room is not occupied.
You can claim 100% of expenses that are only related to renting out the room to paying guests. For example, you can claim the whole commission or facilitator fee charged by the sharing economy website or app.
Claiming deductions when renting out your main residence on an occasional basis
If you rent out your whole house or unit on an occasional basis through the sharing economy, you can claim the proportion of expenses related to the time when you were not at the house or unit.
This may apply where you rent out the house or unit when you are away for a period of time, or you vacate the house or unit to allow paying guests to stay.
In this case, the proportion of total expenses you can claim reflect the proportion of the financial year the house or unit was rented out.
You can claim 100% of any expenses that are only related to renting out the house or unit to paying guests. For example, you can claim the whole commission or facilitator fee charged by the sharing economy provider.
Claiming deductions when renting out an investment property
If you have an investment property that you do not use at all for private purposes and you have it advertised for the whole year as available for rent on one or more sharing economy websites or apps then you can claim 100% of the expenses associated with the property.
If you have an investment property that you use for personal use, like a holiday home, you claim expenses based on the proportion of the financial year the house or unit is rented out or advertised for rent.
How to avoid a tax debt
If you are earning more than $4,000 a year from renting out a room or a whole house or unit, or expect to earn more than $4,000 a year, you could consider entering the pay as you go instalment (PAYGI) system voluntarily so you don’t get a large tax bill at the end of the year.
The PAYGI system allows you to pay amounts every 3 months (quarterly) to help cover any income tax you may need to pay on your sharing economy income.
If you pay too much during the year, you will get the money back when you do your tax return.
If you don’t pay enough during the year, you pay the difference when you do your tax return (but it will be less than if you didn’t pay anything at all).
For any further information on the Sharing Economy please call us on 07 5502 6673 and speak to one of our Qualified Accountants